Propagation of changes in demand through international trade: A case study of China

Jochen Andritzky, Bernhard Kassner and Wolf Heinrich Reuter

The World Economy, 2019, vol. 42, issue 4, 1259-1285

Abstract: China’s economy, the second largest in the world, is undergoing a fundamental transition. Its transition from a strong focus on investment and exports towards a larger share of consumption could have important ramifications for China’s trading partners. Using China as a case study, this paper deploys a sectoral input–output (IO) analysis to take into account higher‐round spillovers from a reduction of import demand or a shift in the composition of the Chinese economy. This approach demonstrates strong indirect effects that exceed by far the initial shock from direct trade links, reflecting China’s integration into a closely knit global value chain. The result suggests that the ongoing transition in China will have important effects on the global economy.

Date: 2019
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